Morning Edition had a segment on the housing recovery which substantially overstated its likely contribution to the recovery. The expert analyst the piece relied upon suggested that housing construction could add 1.0 percentage point to GDP growth over the next three years. This would imply a near doubling of its contribution over the last year.
According to data from the Bureau of Economic Analysis, housing has added an average of just less than 0.4 percentage points to growth over the last four quarters. Its peak contribution in this period was just 0.5 percentage points. Even assuming a multiplier of 1.5, the average contribution over this period would be just 0.6 percentage points, considerably less than the 1.0 percentage point suggested by NPR’s expert.
It is also remarkable that the piece never referred to the vacancy rate which is still near record highs. This is a key factor holding housing starts down.
Morning Edition had a segment on the housing recovery which substantially overstated its likely contribution to the recovery. The expert analyst the piece relied upon suggested that housing construction could add 1.0 percentage point to GDP growth over the next three years. This would imply a near doubling of its contribution over the last year.
According to data from the Bureau of Economic Analysis, housing has added an average of just less than 0.4 percentage points to growth over the last four quarters. Its peak contribution in this period was just 0.5 percentage points. Even assuming a multiplier of 1.5, the average contribution over this period would be just 0.6 percentage points, considerably less than the 1.0 percentage point suggested by NPR’s expert.
It is also remarkable that the piece never referred to the vacancy rate which is still near record highs. This is a key factor holding housing starts down.
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A Washington Post article on the battle over replacing Bernanke as Fed chair forget to mention these qualifications of Larry Summers.
A Washington Post article on the battle over replacing Bernanke as Fed chair forget to mention these qualifications of Larry Summers.
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The Washington Post may not be the best place to get breaking news, but that doesn’t mean they never get the news. Today it ran a piece discussing a proposal by the Center for American Progress (CAP) to create state-run savings systems that workers could contribute to on an opt-out basis. In other words, they would be contributing to the system unless they explicitly asked not to contribute. The plan is intended to supplement Social Security, recognizing that the vast majority of workers have been able to accumulate little or nothing in 401(k) type plans. It would also provide a guaranteed benefit based on the contribution, similar to a cash balance pension plan.
While it’s good to see the Post take note of the CAP proposal, these types of plans are not exactly new. The Economic Opportunity Institute in Washington State has been working on a similar plan for almost 15 years. They got a bill through the legislature for a study of such a system just before the economic downturn in 2007. The budget crisis from the downturn made the state reluctant to spend even the seed money that would be needed to get a plan in place.
There were also efforts undertaken in Maryland, Connecticut, and California (in 2007), that came close to being approved by legislatures and put into law. (CEPR assisted several of these efforts.) Anyhow, it would be helpful to include some of this background.
The Washington Post may not be the best place to get breaking news, but that doesn’t mean they never get the news. Today it ran a piece discussing a proposal by the Center for American Progress (CAP) to create state-run savings systems that workers could contribute to on an opt-out basis. In other words, they would be contributing to the system unless they explicitly asked not to contribute. The plan is intended to supplement Social Security, recognizing that the vast majority of workers have been able to accumulate little or nothing in 401(k) type plans. It would also provide a guaranteed benefit based on the contribution, similar to a cash balance pension plan.
While it’s good to see the Post take note of the CAP proposal, these types of plans are not exactly new. The Economic Opportunity Institute in Washington State has been working on a similar plan for almost 15 years. They got a bill through the legislature for a study of such a system just before the economic downturn in 2007. The budget crisis from the downturn made the state reluctant to spend even the seed money that would be needed to get a plan in place.
There were also efforts undertaken in Maryland, Connecticut, and California (in 2007), that came close to being approved by legislatures and put into law. (CEPR assisted several of these efforts.) Anyhow, it would be helpful to include some of this background.
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Robert Samuelson’s column today is devoted to explaining why housing has not recovered. According to Samuelson the problem is lack of credit. This in turn is the result of the fact that lenders are feeling so beaten up that they are scared to make loans. The moral is that if we don’t stop beating up on the banks then no one will be able to buy a house.
This is a nice story that unfortunately does not fit the data. At the most basic level the problem is that people are actually buying just about as many homes as we should expect. Samuelson focuses on the rate of housing starts, which is below trend, but the relevent measure for a discussion of homebuying and credit is the number of homes that people are buying.
Currently people are buying existing homes at close to a 5 million annual rate. They are buying new homes at close to a 500,000 annual rate for a total rate of home purchases of 5.5 million a year. If we go back to the mid-1990s, after the recession but before irrational exuberance began to dominate the housing market, existing home sales averaged around 3.5 million a year (1993-1995). New home sales averaged just under 700,000 a year for total sales of around 4.2 million a year.
The population is roughly 20 percent larger in 2013 than it was in 1994, which means that we should be seeing around 5.2 million home purchases a year if we are even with the pre-bubble pace. That’s about 5 percent fewer sales than we are actually seeing. This means that if we compare current sales levels to the pre-bubble period we are seeing somewhat more sales than we should expect, not less.
We are seeing considerably less construction than trend levels, but this really should not be any surprise to anyone familiar with housing data. Vacancy rates remain well above normal levels. With a large backlog of vacant homes it is hardly surprising that builders would be reluctant to undertake large amounts of new building.
If anyone wanted to check the credit story that Samuelson tells, they could also look at the Mortgage Bankers Association mortgage application index (sorry, no link). If homebuyers were having trouble getting mortgages then there should be a sharp rise in this index relative to sales, as homebuyers have to put in multiple applications to secure a mortgage and some may not even get a mortgage after many applications. The index actually tracked sales fairly closely through the downturn, which suggests that the percentage of people being denied mortgages had not changed much.
In short, Samuelson has a good story about how we are hurting the housing market by holding bankers responsible for reckless and/or fraudelent mortgage issuance, but it doesn’t fit the data. Nice try, though.
Robert Samuelson’s column today is devoted to explaining why housing has not recovered. According to Samuelson the problem is lack of credit. This in turn is the result of the fact that lenders are feeling so beaten up that they are scared to make loans. The moral is that if we don’t stop beating up on the banks then no one will be able to buy a house.
This is a nice story that unfortunately does not fit the data. At the most basic level the problem is that people are actually buying just about as many homes as we should expect. Samuelson focuses on the rate of housing starts, which is below trend, but the relevent measure for a discussion of homebuying and credit is the number of homes that people are buying.
Currently people are buying existing homes at close to a 5 million annual rate. They are buying new homes at close to a 500,000 annual rate for a total rate of home purchases of 5.5 million a year. If we go back to the mid-1990s, after the recession but before irrational exuberance began to dominate the housing market, existing home sales averaged around 3.5 million a year (1993-1995). New home sales averaged just under 700,000 a year for total sales of around 4.2 million a year.
The population is roughly 20 percent larger in 2013 than it was in 1994, which means that we should be seeing around 5.2 million home purchases a year if we are even with the pre-bubble pace. That’s about 5 percent fewer sales than we are actually seeing. This means that if we compare current sales levels to the pre-bubble period we are seeing somewhat more sales than we should expect, not less.
We are seeing considerably less construction than trend levels, but this really should not be any surprise to anyone familiar with housing data. Vacancy rates remain well above normal levels. With a large backlog of vacant homes it is hardly surprising that builders would be reluctant to undertake large amounts of new building.
If anyone wanted to check the credit story that Samuelson tells, they could also look at the Mortgage Bankers Association mortgage application index (sorry, no link). If homebuyers were having trouble getting mortgages then there should be a sharp rise in this index relative to sales, as homebuyers have to put in multiple applications to secure a mortgage and some may not even get a mortgage after many applications. The index actually tracked sales fairly closely through the downturn, which suggests that the percentage of people being denied mortgages had not changed much.
In short, Samuelson has a good story about how we are hurting the housing market by holding bankers responsible for reckless and/or fraudelent mortgage issuance, but it doesn’t fit the data. Nice try, though.
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George Will, who likes to mock any and everything the government does, has apparently decided that it is very good at supporting scientific research. He is outraged over the sequester, which is bringing a halt to several major research projects at the National Institutes of Health (NIH).
This is truly a fascinating line of argument from Will. He says that we need the government to do this research because it will not produce near term benefits:
“In the private sector, where investors expect a quick turnaround, it is difficult to find dollars for a 10-year program.”
Okay, but this argument implies that the government is not necessarily run by a bunch of bozos. If it were then giving money to NIH would be the same thing as throwing it in the toilet. This means that Will thinks that money spent at NIH actually has useful benefits.
Now let’s carry this logic one step further. Suppose we gave additional funding, not just for basic research, but for actually developing drugs and bringing them through the clinical testing and FDA approval process. We already have Will on record saying that NIH is not run by bozos, so this means that he must think that we can in principle replace the patent supporting research by Pfizer, Merck and the other drug companies with funding from the government. (This doesn’t mean the government does the research. It could contract out the research, possibly even with Pfizer and Merck.) Let’s even hypothesize for the sake of argument, that a dollar of research funding supported by patent monopolies is more efficient than a dollar of funding that passes through the government.
In order to compare the publicly funded route with the patent supported route we would have to weigh the relative efficiency of the research dollars under the two systems with the enormous waste associated with patent monopolies. If a drug was developed through a publicly supported system then it could immediately be sold as a generic for $5 to $10 per prescription instead of selling for hundreds or even thousands of dollars per prescription. No drug company would have an incentive to lie about its effectiveness or hype the drug for inappropriate uses. Also, nearly everyone would be able to get access to the drug without haggling with insurers or government agencies.
In fact, the public system would have advantages in the research process itself. A condition of public support could be that all research findings are publicly posted on the web as soon as practical. This would allow researchers to learn from each others’ successes and failures and to avoid unnecessary duplication. That will not happen with patent supported research where all the findings are proprietary information.
These are the sorts of questions about drug research that serious people would ask if they acknowledge that the government can usefully fund research. But don’t expect to see such follow up questions posed either by Will or anyone else in the Washington Post (except in Wonkblog).
George Will, who likes to mock any and everything the government does, has apparently decided that it is very good at supporting scientific research. He is outraged over the sequester, which is bringing a halt to several major research projects at the National Institutes of Health (NIH).
This is truly a fascinating line of argument from Will. He says that we need the government to do this research because it will not produce near term benefits:
“In the private sector, where investors expect a quick turnaround, it is difficult to find dollars for a 10-year program.”
Okay, but this argument implies that the government is not necessarily run by a bunch of bozos. If it were then giving money to NIH would be the same thing as throwing it in the toilet. This means that Will thinks that money spent at NIH actually has useful benefits.
Now let’s carry this logic one step further. Suppose we gave additional funding, not just for basic research, but for actually developing drugs and bringing them through the clinical testing and FDA approval process. We already have Will on record saying that NIH is not run by bozos, so this means that he must think that we can in principle replace the patent supporting research by Pfizer, Merck and the other drug companies with funding from the government. (This doesn’t mean the government does the research. It could contract out the research, possibly even with Pfizer and Merck.) Let’s even hypothesize for the sake of argument, that a dollar of research funding supported by patent monopolies is more efficient than a dollar of funding that passes through the government.
In order to compare the publicly funded route with the patent supported route we would have to weigh the relative efficiency of the research dollars under the two systems with the enormous waste associated with patent monopolies. If a drug was developed through a publicly supported system then it could immediately be sold as a generic for $5 to $10 per prescription instead of selling for hundreds or even thousands of dollars per prescription. No drug company would have an incentive to lie about its effectiveness or hype the drug for inappropriate uses. Also, nearly everyone would be able to get access to the drug without haggling with insurers or government agencies.
In fact, the public system would have advantages in the research process itself. A condition of public support could be that all research findings are publicly posted on the web as soon as practical. This would allow researchers to learn from each others’ successes and failures and to avoid unnecessary duplication. That will not happen with patent supported research where all the findings are proprietary information.
These are the sorts of questions about drug research that serious people would ask if they acknowledge that the government can usefully fund research. But don’t expect to see such follow up questions posed either by Will or anyone else in the Washington Post (except in Wonkblog).
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The Washington Post ran an article on Bill Daley’s decision to run for the Democratic nomination for governor in Illinois. The piece notes that Daley is the son of former Chicago Mayor Richard J. Daley and the brother of another former mayor, Richard M. Daley.
It probably would have been worth noting that latter connection is not likely to play especially well right now. Richard M. Daley failed to make the required contributions to the city’s pension funds for his last decade in office, leaving them underfunded by more than $27 billion. (This includes the teacher’s fund, which comes from a separate budget.) The current mayor, Rahm Emmanual claims that this is an unpayable burden and want to default on the city’s debt to these funds. (The workers and their unions strongly object to this plan and will fight any default in court.)
Regardless of the outcome of this dispute, allowing pensions to become as underfunded as Chicago’s was remarkably irresponsible, especially in a city such as Chicago with a relatively healthy economy. There are few big city mayors who have been more reckless with public finances in recent decades.
It is probably also worth noting that Emanual has claimed that the city’s schools were a disaster when he came into office. The schools had been under Daley’s direct control for most of his 22 years in office.
The Washington Post ran an article on Bill Daley’s decision to run for the Democratic nomination for governor in Illinois. The piece notes that Daley is the son of former Chicago Mayor Richard J. Daley and the brother of another former mayor, Richard M. Daley.
It probably would have been worth noting that latter connection is not likely to play especially well right now. Richard M. Daley failed to make the required contributions to the city’s pension funds for his last decade in office, leaving them underfunded by more than $27 billion. (This includes the teacher’s fund, which comes from a separate budget.) The current mayor, Rahm Emmanual claims that this is an unpayable burden and want to default on the city’s debt to these funds. (The workers and their unions strongly object to this plan and will fight any default in court.)
Regardless of the outcome of this dispute, allowing pensions to become as underfunded as Chicago’s was remarkably irresponsible, especially in a city such as Chicago with a relatively healthy economy. There are few big city mayors who have been more reckless with public finances in recent decades.
It is probably also worth noting that Emanual has claimed that the city’s schools were a disaster when he came into office. The schools had been under Daley’s direct control for most of his 22 years in office.
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